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Commerce & Accountancy 2022 Paper I 50 marks Solve

Paper I — Q6

(a) From the following data, you are required to prepare a Balance Sheet and a Statement of Profit and Loss : (a) Share Capital…

(a) From the following data, you are required to prepare a Balance Sheet and a Statement of Profit and Loss : (a) Share Capital 9,60,000 (b) Working Capital 3,64,000 (c) Bank Overdraft 60,000 Additional information : (i) Current Ratio – 2 (ii) Quick Ratio – 1·5 (iii) Proprietary Ratio – 0·80 (Fixed Assets/Proprietary Fund) (iv) Gross Profit Ratio – 0·20 (v) Inventory Turnover Ratio – 4 (vi) Trade Receivables Turnover – 36 days (vii) Net Profit to Paid-up Capital – 10% Assume there are no fictitious assets. In the case of current assets, there are no assets other than inventories, trade receivables and cash. Closing inventory is 20% higher than the opening inventory. Also assume 360 days in a year. (b) Capital structure of a company consists of the following : Equity Share Capital : (Shares of ₹100 each) — 40,00,000 Retained Earning — 20,00,000 8% Preference Shares — 20,00,000 7% Debentures — 4,00,000 Total — 84,00,000 The company requires ₹ 50,00,000 to finance the expansion programme for which the following alternatives are available : (i) Issue of 40,000 equity shares at a premium of ₹ 25 per share (ii) Issue of 10% Preference Shares (iii) Issue of 8% Debentures It is estimated that in the case of equity shares, preference shares and debentures financing, the PE ratios would be 21·4, 17 and 15·7 respectively. Assume the company earns 12% on its capital with the income tax rate of 50%. You are required to evaluate the three financing alternatives and recommend the best alternative suitable for the company. 15 (c) What is money market ? Explain the features of a developed money market. 15

हिंदी में प्रश्न पढ़ें

(a) निम्नलिखित आँकड़ों से तुलन-पत्र तथा लाभ-हानि विवरण तैयार कीजिए : (क) शेयर पूँजी 9,60,000 (ख) कार्यशील पूँजी 3,64,000 (ग) बैंक अधिविकर्ष 60,000 अतिरिक्त सूचनाएँ : (i) चालू अनुपात – 2 (ii) त्वरित अनुपात – 1·5 (iii) स्वामित्व अनुपात – 0·80 (स्थिर परिसम्पत्तियाँ/स्वामित्व निधि) (iv) सकल लाभ अनुपात – 0·20 (v) स्कन्ध आवर्त अनुपात – 4 (vi) व्यापारिक प्राप्य आवर्त – 36 दिन (vii) प्रदत्त पूँजी पर शुद्ध लाभ – 10% मान लीजिए कि कोई आभासी परिसम्पत्तियाँ नहीं हैं । चालू परिसम्पत्तियों में स्कन्ध, व्यापारिक प्राप्य और रोकड़ के अतिरिक्त कोई परिसम्पत्तियाँ नहीं हैं । अंतिम स्टॉक प्रारंभिक स्टॉक से 20% अधिक है । साथ ही, एक वर्ष में 360 दिन मान लीजिए । (b) एक कम्पनी की पूँजी संरचना में निम्नलिखित सम्मिलित हैं : इक्विटी शेयर पूँजी : (₹ 100 प्रति शेयर) — 40,00,000 प्रतिधारित आय — 20,00,000 8% अधिमान शेयर — 20,00,000 7% ऋणपत्र — 4,00,000 कुल — 84,00,000 कम्पनी को विस्तार कार्यक्रम के वित्त-पोषण हेतु ₹ 50,00,000 की आवश्यकता है जिसके लिए निम्नलिखित विकल्प उपलब्ध हैं : (i) ₹ 25 प्रति शेयर प्रीमियम पर 40,000 इक्विटी शेयरों का निर्गमन (ii) 10% अधिमान शेयरों का निर्गमन (iii) 8% ऋणपत्रों का निर्गमन यह अनुमान लगाया गया है कि इक्विटी शेयर, अधिमान शेयर एवं ऋणपत्र वित्त-पोषण की स्थिति में कीमत/आय (पी.ई.) अनुपात क्रमशः 21·4, 17 तथा 15·7 होंगे । मान लीजिए कि कम्पनी अपनी पूँजी पर 12% अर्जित करती है । आयकर की दर 50% है । आपको तीन वित्त-पोषण विकल्पों का मूल्यांकन करके कम्पनी के लिए उपयुक्त सर्वोत्तम विकल्प की अनुशंसा करनी है । 15 (c) मुद्रा बाजार क्या है ? एक विकसित मुद्रा बाजार की विशेषताएँ स्पष्ट कीजिए । 15

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Directive word: Solve

This question asks you to solve. The directive word signals the depth of analysis expected, the structure of your answer, and the weight of evidence you must bring.

See our UPSC directive words guide for a full breakdown of how to respond to each command word.

How this answer will be evaluated

Approach

Solve this multi-part numerical problem by first preparing the Balance Sheet and P&L for part (a) using ratio analysis working backwards from given data, then evaluate financing alternatives in part (b) through EPS and market price calculations, and finally define money market with features for part (c). Allocate approximately 40% time to part (a) due to complex interlinked calculations, 35% to part (b) for comparative analysis, and 25% to part (c) for conceptual explanation.

Key points expected

  • Part (a): Derive Current Assets (₹7,28,000), Current Liabilities (₹3,64,000), Inventory (₹1,82,000), Trade Receivables (₹3,64,000), Cash (₹1,82,000), Fixed Assets (₹7,68,000), Proprietary Fund (₹9,60,000), Sales (₹45,50,000), Gross Profit (₹9,10,000), Net Profit (₹96,000)
  • Part (a): Correctly prepare vertical format Balance Sheet showing Share Capital ₹9,60,000, Reserves & Surplus ₹4,86,000, Fixed Assets ₹7,68,000, and Current Assets ₹7,28,000 against Current Liabilities ₹3,64,000
  • Part (a): Prepare Statement of Profit and Loss showing Sales ₹45,50,000, Cost of Goods Sold ₹36,40,000, Gross Profit ₹9,10,000, and Net Profit ₹96,000 after expenses
  • Part (b): Calculate existing EBIT ₹10,08,000 and existing EPS ₹21.60; compute new EPS under three alternatives: Equity (₹25.71), Preference Shares (₹24.00), Debentures (₹27.43)
  • Part (b): Calculate market price per share using PE ratios: Equity ₹550.19, Preference Shares ₹408.00, Debentures ₹430.66; recommend debentures for maximum shareholder wealth
  • Part (c): Define money market as wholesale market for short-term funds (up to 1 year) with instruments like treasury bills, commercial paper, call money
  • Part (c): Explain features of developed money market: presence of central bank, commercial banks, acceptance houses, discount houses, well-organized bill market, integrated sub-markets, adequate instruments, and efficient clearing mechanism

Evaluation rubric

DimensionWeightMax marksExcellentAveragePoor
Demand-directive understanding20%2Correctly interprets 'solve' as requiring complete numerical working for (a) and (b) plus conceptual explanation for (c); recognizes part (a) demands reverse calculation from ratios, part (b) requires comparative evaluation with recommendation, and part (c) needs definitional clarity with developed market featuresUnderstands basic requirements but may misinterpret one directive (e.g., lists features without explaining 'developed' money market distinction) or presents calculations without explicit recommendation in part (b)Misinterprets directives significantly—treats part (a) as theory question, ignores comparative evaluation in part (b), or provides generic money market definition without developed market features
Content depth & accuracy20%2All calculations mathematically accurate: Current Assets ₹7,28,000, Inventory ₹1,82,000, Sales ₹45,50,000, COGS ₹36,40,000 in (a); correct EBIT, interest, tax, EPS and market price calculations in (b); comprehensive developed money market features with RBI's role in (c)Minor calculation errors (e.g., inventory figure off by closing-opening adjustment, or EPS calculation with tax treatment error) but correct methodology; adequate but incomplete developed market featuresMajor calculation errors in working capital derivation, incorrect ratio application (e.g., treating proprietary ratio as proprietary fund/total assets), or fundamental errors in EPS/PE calculations; superficial or incorrect money market explanation
Structure & flow20%2Clear three-part structure with labeled sections; part (a) shows systematic working notes before final statements; part (b) presents comparative table for three alternatives before recommendation; logical progression from definition to features in part (c)Generally organized but working notes merged with final statements or missing; comparison in part (b) presented sequentially rather than in tabular format; features in part (c) listed without categorizationDisorganized presentation with calculations scattered; no clear separation between parts; missing working notes; jumps between questions without headings; illegible or confusing numerical presentation
Examples / case-law / data20%2Uses Indian money market context in part (c) citing RBI, SBI, DFHI, STCI; references specific instruments like 91-day T-bills, commercial paper, certificates of deposit; in part (b), implicitly applies SEBI regulations on pricing and Companies Act provisions on preference sharesGeneric money market instruments without Indian institutional context; or mentions RBI without explaining its developmental role; part (b) lacks regulatory awareness in financing decisionNo Indian examples or institutional references; completely generic treatment of money market; ignores regulatory framework for financing alternatives; no awareness of Indian financial system structure
Conclusion & analytical edge20%2Explicit recommendation in part (b) with justification: debentures selected for highest market price (₹430.66) despite moderate EPS, considering financial risk implications; part (c) distinguishes between organized (developed) and unorganized money markets in India; identifies trade-offs in financing decisionStates recommendation without clear justification or selects alternative without risk analysis; part (c) describes features without analytical distinction between developed and developing marketsNo recommendation in part (b) or contradictory conclusion; part (c) ends with list without synthesis; fails to recognize that highest EPS (debentures) may involve financial risk trade-off; no analytical insight across any part

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